Thank you,13 Madam President.14 COUNCIL PRESIDENT VERNA:15 You're welcome.16 Councilman Greenlee.17
Just one18 last question along those same lines.19 What is your opinion about what the bill20 does as far as the gross receipts tax?21 Obviously increases it. What is your22 opinion on that?23
That's where --24 I'm as curious as you are to hear some of25 89 11/30/10 - WHOLE - BILL 1006351 the testimony later to hear more opinions2 on that. Again, we know that cutting the3 net income tax makes a great deal of4 sense. We know that increasing the gross5 receipts tax will have a negative impact6 for some businesses. I'm very interested7 in the testimony of Mr. Dubow and8 Mr. Mullin.9
Okay.10 Thank you.11 Thank you, Madam President.12 COUNCIL PRESIDENT VERNA:13 You're welcome.14 The Chair recognizes Councilman15 Jones.16
18 First of all, thank everyone19 that has given testimony. It has been20 insightful. 25 90 11/30/10 - WHOLE - BILL 1006351 I'm also thankful that people2 are using on the analogy an example of3 the Fourth District, which is City4 Avenue. 6 So when people make these7 strong assertions that one way or another8 somebody is going to go based on a9 percentage point or two one way or the10 other, I don't think -- I think it's a11 little more elastic than inelastic in12 location. 13 My second point is, as people14 start talking about these winners and15 losers, I want it codified in three16 categories for me. One, the winners when17 it comes to businesses, what individual18 businesses and industries are impacted,19 winners, losers. And I also want to know20 what the job impact, winners and losers,21 are. Because if a winner in one sense is22 going to, in so doing, hire somebody,23 that's important to me. 8 I look at the broad picture, like all of9 us, what is the impact on our treasury,10 but at the end of the day, I'm concerned11 about the person on the construction12 site, I'm concerned about the person who13 works in Target, I'm concerned about what14 those impacts are. 5 And the third food group and6 final food group is potential investors,7 people that are making a decision whether8 to move, someone said, seven miles up9 Lancaster Avenue or Bala Cynwyd Avenue10 and whether or not that's enough to miss11 out on a market that might be at12 Philadelphia's -- in Philadelphia or on13 its border, is it enough to move them out14 of that. 20 Also, a lot of assertions have21 been made about the potential 75,000 job22 loss. I mean, I know enough about23 economics to know that a lot of this is24 the WAG theory, which is a wild-ass25 94 11/30/10 - WHOLE - BILL 1006351 guess, and we don't know. I mean, for2 real. I mean, we can put up all the3 charts in the world, but we don't know4 what people are going to do. So if you5 say we're going to lose 75,000 jobs,6 based on what? 10
Thank11 you.12 The Chair recognizes Councilman13 Clarke.14
Thank you,15 Madam Chair.16 Good word, Councilman Jones.17 Good morning. Actually, before18 I ask a couple of questions, I just want19 to be consistent with the conversations20 that I have personally had with a number21 of people that have come at this witness22 table in this whole debate about tax23 issues, and I actually heard a reference.24 I can't remember who said it, but this25 95 11/30/10 - WHOLE - BILL 1006351 whole notion of jobs moving into the2 City, jobs leaving the City, headquarters3 moving in, moving out, people's decisions4 as it relates to whether or not this is a5 city that's a good place to do business6 is not just related to this whole tax7 issue, because there are other8 considerations, such as schools. There9 are other considerations, such as crime,10 environment.11 So there are a whole lot of12 things that factor into this whole -- and13 I'm just being consistent, because I14 always say this every time people -- and15 I know, Mr. Mandel, we've had lengthy16 debates about this in your earlier years.17 And I think that as we take this holistic18 approach about the tax policy, we should19 also understand what implications they20 may have on those other very important21 issues, such as our ability to fund our22 schools, such as our ability to have23 enough police to be on the streets, such24 as our ability to make sure that we have25 96 11/30/10 - WHOLE - BILL 1006351 decent places to live and the quality of2 life is sustained. So that's also a part3 of it.4 But getting back to this tax5 issue, and I want to ask -- I'm like6 Councilman Green, the accountant, Mr.?7 MR. KOSTENBAUDER:8 Kostenbauder.9 COUNCILMAN CLARKE:10 Kostenbauder. Actually, your testimony11 was quite intriguing, in that you talked12 about various aspects and the impacts on13 various businesses, winners, losers,14 inside, outside. The first question I15 have, do you have the analysis that16 you've done in writing?17
I took18 actual net income for 2009 and actual19 gross receipts for several different20 clients, and that's where I'm coming up21 with my numbers.22
Is that23 proprietary? The reason I ask that,24 because it was very detailed and, from my25 97 11/30/10 - WHOLE - BILL 1006351 perspective, not to suggest that you all2 are not balanced, but to date so far,3 your testimony seemed like the most4 balanced testimony, the most objective,5 and I wanted to know if --6
Well, I7 consider it proprietary. If there is a8 way -- remember, this is an extremely9 small population --10
-- of the13 entire tax base of the City of14 Philadelphia.15
If there's a18 way that I can summarize it for you, I19 will attempt to do that.20
That will21 be very helpful.22 The second thing, I think I23 heard you reference the fact that --24 there's this sense that all of the,25 98 11/30/10 - WHOLE - BILL 1006351 quote/unquote, companies that may be2 headquartered outside of the City or the3 larger companies are high profit margin4 companies, which I believe a lot of them5 are not. There are a significant number6 of low margin profit, high volume7 companies that would not benefit8 significantly from the $100,0009 exemption, because they are larger10 companies.11 Can you talk to me about those12 companies and the impact that can13 potentially be on those types of14 companies, either in or outside the City15 of Philadelphia?16
A company17 that can apportion is only, if you take18 away the business privilege tax, is only19 going to pay the gross receipts tax,20 which, as we know, will go up21 significantly. And every taxpayer is22 different. You have to run the numbers23 on every taxpayer. So there are those24 that will find themselves -- in one case25 99 11/30/10 - WHOLE - BILL 1006351 I found it almost tripling. In another2 case, it doubled. It really depends.3
It's very6 specific to the margin. It's very7 specific to their base. If you're8 outside the City property, outside the9 City payroll, at zero-zero allocated the10 City, the gross receipts, there might be11 different impact than if you are in the12 City. There is -- you have to do the13 modeling.14
Okay. In15 your client base, do you have any of the16 companies that are construction related?17
What impact19 do you anticipate, if you've done an20 analysis on that, as it relates to a21 construction company?22
I did23 analysis on one. It was not based in the24 City, and it doubled. It virtually25 100 11/30/10 - WHOLE - BILL 1006351 doubled. It paralleled everything being2 said about the construction industry3 impact.4
As it12 relates to that? Okay. All right.13 Thank you very much.14 Thank you, Madam President.15
Thank16 you.17 The Chair recognizes18 Councilwoman Brown.19
Thank you,20 Madam President.21 Good morning, everyone.22 Brett Mandel, my follow-up23 questions are for you. Have you done an24 analysis of the bill?25 101 11/30/10 - WHOLE - BILL 1006351
Across the4 board, recognizing and accepting the fact5 that you're an expert on this type of6 issue.7
I always rely on8 the experts who do the actual number9 crunching. So I took a look at what10 Inman did, I took a look at what Econsult11 has done, and I took a look at what the12 City has done. As I said, looking at who13 wins, who loses is the most important14 thing in this and what you think is going15 to happen based on those winners and16 losers, and I guess I would say I'm still17 looking at that as well.18
Okay. So19 you have done an assessment of who the20 winners and losers are?21
I certainly22 haven't done an independent analysis, but23 I've looked at the analysis that was done24 for the bill.25 102 11/30/10 - WHOLE - BILL 1006351
Do you2 agree with the tentative list of who the3 winners and losers are?4
Yeah. Certainly5 isn't surprising. As the accountants6 have said, it makes sense. If you're7 going to eliminate the net income tax,8 you're going to help certain firms. If9 you're going to increase the gross10 receipts tax, you are going to hurt11 certain firms or at least make them pay12 more. I don't think that's a shock.13
In the14 third paragraph, first sentence of your15 testimony, you say, and I quote,16 "Philadelphia's tax problems remain17 threefold - we tax too much, we tax the18 wrong stuff, and we tax unfairly."19 Do you believe this tax20 proposal is fair?21
I think it creates22 different unfairnesses. I think that the23 current tax structure is unfair in one24 way. Certainly if you favor some firms25 103 11/30/10 - WHOLE - BILL 1006351 and disfavor, if that's a word, other2 firms, you'll hear other complaints of3 unfairness. Again, why it's fundamental,4 the first line of the next paragraph,5 which you didn't even snicker on, "take6 the business taxes, please," that's7 fundamentally what the City needs to do.8
Do you9 believe that this proposal is revenue10 neutral?11
I believe that the12 revenue neutral number is always going to13 be shifting based on the City's budget14 assumptions. When the City gives you new15 budget assumptions, you'll have to change16 the rates to make it revenue neutral.17
With that18 said, do you believe that we should be19 having this conversation, discussion,20 friendly debate as a part of the budget21 review process?22
I think whenever23 you have it, it's good, because this24 problem is here, it's now, whether you25 104 11/30/10 - WHOLE - BILL 1006351 have it during the budget debate. I will2 say that as a veteran of tax reform3 discussions, when the Administration4 wants to have the debate, they're5 thrilled to have the debate. When they6 don't want to have the debate, there's7 always a better time to have the debate.8 When you're in the budget session, We9 should have this debate after we settle10 the budget. When you're out of the11 budget session, they say, Let's have this12 debate during the budget session.13 So you are the legislative body14 of the City. You should make legislation15 when you want to make legislation.16
Thank you17 for your testimony.18 Thank you, Madam Chair.19 COUNCIL PRESIDENT VERNA:20 You're welcome.21 The Chair recognizes Councilman22 DiCicco.23 COUNCILMAN DiCICCO: Thank you,24 Madam Chair.25 105 11/30/10 - WHOLE - BILL 1006351
Just a6 follow-up to Councilwoman Brown's7 question where she asked about whether it8 was revenue neutral, and your response9 was that it's based upon each budget10 year. So in order for this to remain11 revenue neutral, I believe you just12 answered that the rates would have to13 constantly change.14
I guess what I'm15 saying is that the Administration sets16 the revenue estimates. They're the ones17 who are going to determine what the rates18 would have to be to make it revenue19 neutral. If you --20
So either at21 some point it's no longer revenue neutral22 or the rates change?23
Sure. Revenue24 neutrality will only be at one point in25 106 11/30/10 - WHOLE - BILL 1006351 time and then the marketplace will react2 and there will no longer be revenue3 neutrality.4
So either5 way, it's bad. It's bad because it's not6 revenue neutral or it's bad because the7 rates keeps shifting.8
I guess I'm saying9 that revenue neutrality only exists at10 one specific point in time when the11 numbers are calculated. Once the numbers12 are calculated --13
So14 technically we shouldn't be using the15 word "revenue neutral," period. Is that16 a better way of putting it?17
Thank you,20 Madam President.21 COUNCIL PRESIDENT VERNA:22 You're welcome.23 Councilman DiCicco.24 COUNCILMAN DiCICCO: Thank you,25 107 11/30/10 - WHOLE - BILL 1006351 Madam Chair, and good afternoon. Winners2 and losers. I wish there was a way of3 saying we would all be winners and there4 would be no losers, because I think that,5 in and of itself, makes me very6 uncomfortable about doing any7 legislation, but I live in the real world8 and I know that sometimes that's the way9 things are. But I think with all the10 brain trusts that we have and all the11 people who have been working on this for12 the last couple of years and having seen13 where the City has come in the 15 years14 or actually a little bit longer than I've15 been here during Rendell's first16 administration in reducing taxes, but for17 the national economy, I think the City of18 Philadelphia was doing quite well, and I19 think it has to do with the fact that we20 were beginning to do tax reductions.21 To the gentleman, the22 builder -- I forget your last name,23 because I was --24
Scott.25 108 11/30/10 - WHOLE - BILL 1006351 COUNCILMAN DiCICCO: -- I was2 practicing Mr. Kostenbauder's last name,3 so I lost your last name.4
I have an easy one,5 Scott.6 COUNCILMAN DiCICCO: Scott.7 Okay. Thank you. You talk about some8 investments that your company has made in9 the City of Philadelphia and probably go10 back late '80s maybe?11
Mid '80s, yes, sir.12 COUNCILMAN DiCICCO: Probably13 our tax structure was probably at its14 worst at that time, but you made a15 decision, a business decision, to come16 here because maybe supply and demand or17 that the Philadelphia market had some18 appeal to you. Is that a fair19 assumption?20
Actually, IBM21 brought us to Philadelphia.22 COUNCILMAN DiCICCO: Pardon me?23
IBM brought us to24 Philadelphia to build their building.25 109 11/30/10 - WHOLE - BILL 1006351 COUNCILMAN DiCICCO: And then2 you did Commerce Two?3
We did One Commerce4 Square for IBM and Two Commerce Square5 for Conrail.6 COUNCILMAN DiCICCO: Conrail.7 And then you did the Murano?8
Yes, sir.11 COUNCILMAN DiCICCO: In the12 last five, six years?13
It opened in 2008.14 COUNCILMAN DiCICCO: My point15 being that as bad as things are, there16 was still some positive reason to want to17 develop in the City of Philadelphia. If18 it was as bad as some people are19 suggesting, that no one wants to do20 business in Philadelphia -- and I don't21 mean this to be flip or sarcastic -- I22 don't think your company would have made23 that decision to develop in the City of24 Philadelphia in recent years. I mean,25 110 11/30/10 - WHOLE - BILL 1006351 not even going back as far as the '80s,2 because IBM brought you here, I3 understand that.4
We owned the Murano5 site. We acquired it when we acquired6 the 20th and Market site. We owned it7 and tried to develop it for over a decade8 as an office site, but because of low9 demand and the inability to make the10 numbers work because of that low demand,11 we, in defense, turned to residential12 development.13 COUNCILMAN DiCICCO: And then14 the real estate market nationally took a15 dive and you guys took a hit as a result16 of that.17
Indeed.18 COUNCILMAN DiCICCO: But for19 that, I think you would agree that your20 project would have been a successful21 project.22
We hope that it23 will still be a success.24 COUNCILMAN DiCICCO: Well, and25 111 11/30/10 - WHOLE - BILL 1006351 I hope so, too.2
Thank you.3 COUNCILMAN DiCICCO: Because4 we'd like to see another project get5 built after you guys, and a few of the6 other folks who have developed have done7 some recent auctions to try to sell some8 of the units.9
Yes.10 COUNCILMAN DiCICCO: To11 Mr. Kostenbauder, you mention -- and kind12 of along the same line of questioning13 that Councilman Goode and Councilman14 Clarke were going. You mention marginal15 businesses that would be negatively16 impacted being restaurants and17 construction. Are there any other18 industries that would be, in your19 opinion, negatively impacted by way of20 this legislation?21
Well, you're22 going to hear me say "it depends" a lot.23 COUNCILMAN DiCICCO: And I24 understand that, but generally.25 112 11/30/10 - WHOLE - BILL 1006351
You can have2 a real estate enterprise that is hurt for3 ten years, I mean, that is kind of hurt a4 little bit for ten years, but then they5 sell. Well, I don't know if that's been6 factored into this. So it all depends on7 the unique aspects of each particular8 enterprise.9 COUNCILMAN DiCICCO: Does the10 service industry, as an example, would11 they be more negatively impacted?12
I believe13 they're more positively impacted. From14 my sample, they're more positively15 impacted.16 COUNCILMAN DiCICCO: But17 restaurants?18
Restaurants,19 based on what I went through and what I20 understand, is that they would initially21 be negatively impacted. Although it's my22 hope that if you increase the pie, that23 they're going to have more revenues that24 will compensate for the hit that they25 113 11/30/10 - WHOLE - BILL 1006351 take. I'm not sure how much analysis has2 been done there either, but...3 COUNCILMAN DiCICCO: I was in4 the restaurant business and I went5 bankrupt, so I know about marginal6 restaurant business.7
As 808 percent of businesses do.9 COUNCILMAN DiCICCO: Eighty10 percent of restaurant businesses do,11 right. Then I became a Councilman and12 got even poorer, but that's besides the13 point.14 I guess my point is, when you15 look at construction and you look at16 restaurants and I don't know what other17 industries would be negatively impacted,18 we're talking about industries that19 employ Philadelphians primarily. I'm not20 taking any exception to the big law21 firms. They employ Philadelphians as22 well, but I'm trying to get a numbers23 thing here.24 Construction are blue-collar25 114 11/30/10 - WHOLE - BILL 1006351 jobs. Restaurants, service industry are2 blue-collar jobs. Those are the people3 who live in our communities. Hoteliers,4 as an example, I'm not sure what your5 analysis says about that. They employ,6 someone said, 80 percent. I think it's7 closer to 85 percent of the people who8 work in hotels are Philadelphia9 residents, many of whom had not been10 employed until those hotels were built.11 So I'm just trying to look at12 it in a numbers -- using a numbers game,13 if you will, to see how many Philadelphia14 residents would be impacted either15 positively or negatively by way of this16 legislation.17
I'm not18 really in a position, having not done an19 analysis like that, having, for example,20 no hotel clients. And I'll reflect on21 what I said previously. This is an22 extremely small sample that I'm using,23 but it does parallel everything that's24 being said about service and low margin25 115 11/30/10 - WHOLE - BILL 1006351 versus the impact on each.2 COUNCILMAN DiCICCO: Higher3 margin.4
Higher5 margin.6 COUNCILMAN DiCICCO: I think7 that's all, Madam President.8 Thank you. Thank you very9 much.10
Thank11 you.12 The Chair recognizes Councilman13 Green.14
Thank you,15 Madam Chair.16 Mr. Scott, I know you have to17 leave and so I really want to thank you18 for staying as long as you did. I just19 want to ask this one question. Would you20 have come to Philadelphia in 1987 without21 an anchor tenant in a building that they22 wanted to be built here?23
Okay. And I25 116 11/30/10 - WHOLE - BILL 1006351 know you said this during your testimony,2 but for how many years did IBM decide to3 stay in Philadelphia in your building and4 why did they leave?5
What they told us10 was because they couldn't justify paying11 the taxes in the City.12
They told us BPT24 and wage tax.25 117 11/30/10 - WHOLE - BILL 1006351
1983.11 Thank you, Madam President.12 COUNCIL PRESIDENT VERNA:13 You're welcome.14 Councilman.15
And I think16 they came here in 1987.17 Mr. Kostenbauder, during your18 testimony, you said that in your small19 sampling of the businesses that you20 looked at, the non-Philadelphia-based21 firms ended up paying more to the City22 than they otherwise were paying on23 average among your client base; is that24 correct?25 118 11/30/10 - WHOLE - BILL 1006351
Thank you,8 Madam President.9 Good afternoon, and thank you10 for your testimony. I just want to touch11 on something that Councilwoman Brown12 touched upon and our City Controller13 Butkovitz also mentioned in his testimony14 about the timing of this legislation.15 Now, we've heard about the winners, the16 losers and everyone else, and Councilman17 Jones just mentioned something about,18 well, there may be people losing their19 jobs over this, there may be people20 gaining employment, and I just want to21 ask Mr. Mandel and the other panelists if22 they have any opinion as to the timing of23 this legislation, because it seems to me24 that this is a very complex issue and25 119 11/30/10 - WHOLE - BILL 1006351 this is going to be -- it's going to have2 to put more study in it as far as the3 effects. How is this going to affect4 Philadelphians in general? And that's5 what we have to look at.6 I just want to know if -- it7 won't be long before we're sitting in8 this Chamber discussing a budget for next9 year, and this is going to be one of the10 questions. Of course, it's going to11 affect our budget for next year, and I12 don't know if it's going to be negative13 or positive. I just wanted to know if14 you had any advice on or opinion on15 whether this is the time to be doing that16 or should be done, as Councilwoman Brown17 mentioned, that maybe it would be better18 to be doing this in the budget when we're19 discussing the budget for next year.20 Does anyone want to give their21 opinion on that?22
I'll take a crack23 at deferring to my colleagues here,24 because, as you know, I've come to this25 120 11/30/10 - WHOLE - BILL 1006351 Council many, many times saying that you2 should have done many things a lot sooner3 than this. So if you didn't listen to my4 timing advice then, I'll defer to them5 today.6
A decision8 to locate in the City in a good economy9 is difficult. A decision to locate in10 the City in a bad economy is even worse.11 The term "disincentive" was used. If you12 remove a disincentive, it makes it easier13 for me to recommend to a client who --14 and if they're a C corporation, they're15 paying 35 percent -- 34, 35 percent to16 the federal government. They're paying17 9.99 percent to the State of18 Pennsylvania. They're then going to pay19 another 6 percent to the City. It makes20 it easier if I say, You don't have to.21 It makes it easier for them to make a22 decision if they have access to the same23 basic population, workforce, a lot of24 other things held equal, to not locate in25 121 11/30/10 - WHOLE - BILL 1006351 the City.2
Well, you3 mention that you have a -- I guess in4 your client base, how many would you5 say -- what would be the percentage of6 your clients come out winners versus7 losers?8
You know, I9 wish I had been able to do an10 across-the-board analysis. Some of our11 clients reached out to us, mainly in the12 construction or real estate arena. Many13 of them didn't, because they didn't14 believe this was going to ever come to15 fruition.16 So I'm not in a good position17 to give you an across-the-board answer.18
Okay. Well,19 it would be interesting to see where the20 Chambers come into this field. I'd be21 very, very anxious to know what their22 opinion is. But thank you very much.23 Thank you, Madam President.24 COUNCIL PRESIDENT VERNA:25 122 11/30/10 - WHOLE - BILL 1006351 You're welcome.2 The Chair recognizes Councilman3 Jones. Is he in the room?4 I don't believe he's in the5 room, so we'll continue on.6 Does anyone else want to be7 recognized?8 (No response.)9 COUNCIL PRESIDENT VERNA:10 Seeing no one, thank you all very much.11 We appreciate your coming in.12 MR. McPHERSON: Our next panel13 consists of Robert Rosania, Pete Windle,14 Ed Kicak.15 (Witnesses approached witness16 table.)17
Good18 afternoon, gentlemen.19 (Good afternoon.)20 COUNCIL PRESIDENT VERNA:21 Please identify yourself for the record22 and proceed with your testimony.23
25 123 11/30/10 - WHOLE - BILL 1006351 Thank you for the opportunity to present2 my testimony today. S. Armed Forces, the defense10 industry, commercial OEMs and a host of11 industrial applications. 14 I am a 50 percent owner of the15 business and, along with my other16 business partner, we took over the17 company in 2001. We focus on the more18 technically sophisticated items, which19 has helped our business to not only20 survive through the years but thrive over21 the past ten years. S. 6 Our company has been located in7 Philadelphia for many years, and we are8 committed to stay in the City. Both my9 business partner and myself born and10 raised in the City and went to school in11 the City. So we're committed to stay12 here. 16 We currently employ 12017 employees, most of whom are Philadelphia18 residents. 25 an hour. Our average salary2 employee, less the two owners, earn just3 under $59,000 a year. 6 We are a growing business. 2 million in 2009, an10 increase over 300 percent. After a small11 dip or a small decrease which we'll see12 this year, we are projecting continued13 growth in years to come. 2 Our net income portion of our3 business privilege tax currently is4 $24,000 a year. Under this proposed5 business privilege tax change, by the6 Year 2015 the vast majority of our BPT7 would be eliminated. 13 As an owner of Ehmke14 Manufacturing, we support the reform not15 only because it would result in tax16 savings for our company but also because17 it would make us more competitive with18 companies based outside the City. Most19 of our sales are to customers outside the20 City. 7
Good afternoon,11 Madam President and members of Council.12 My name is Pete Windle. I'm the13 President and CEO of Windle Mechanical14 Solutions Excel Machine Company. I15 purchased Excel Machine Company in the16 year 2006. It has been located in the17 Tacony section of Philadelphia since18 1969. We manufacture machine parts for19 the oil and gas, power, aerospace and20 BioPharma manufacturers. Nine people21 work in our shop, with an average salary22 of $46,000. I'm also proud to provide23 family-sustaining wages to our people.24 The past few years have been25 128 11/30/10 - WHOLE - BILL 1006351 challenging for us, but we did not lay2 anyone off during this recessionary time3 and used the downtime to train the crew4 to qualify us for an ISO 9001 20085 Quality Management System and6 Certification. This is a globally7 recognized certification, denotes8 high-quality manufacturing standards and9 a commitment to continuous improvement.10 We did this to position ourselves for11 when things turn and, as we pursue12 growth, to put us in a better situation13 to grow our business.14 As we come out of the15 recession, I am looking to grow the16 business by developing new product lines17 and services to our target market18 segments, which includes emerging19 industries and alternative industry20 sector. Our annual revenues average21 about $900,000 over the last five years22 and projected to grow to $2.5 to $323 million in the next five.24 We're proud to be a small25 129 11/30/10 - WHOLE - BILL 1006351 business manufacturing still in2 Philadelphia, but the cost of doing3 business here, and especially the BPT,4 the privilege tax, is a challenge for us5 and can put us at a disadvantage when we6 go after contracts with companies outside7 of the City.8 As we grow towards our targeted9 business levels, we know we'll be faced10 with decisions of relocating our facility11 to a place that supports new business12 levels. With that said, we will evaluate13 the costs associated with staying inside14 the City and weigh these costs against15 relocating outside the City where the16 cost may be less due, in part, to the BPT17 tax.18 An analysis of our BPT in 2007,19 '08 and '09 has shown that under the new20 proposal, our tax liability would in fact21 go down. If we looked at 2007; example,22 when we had a fairly good year, the tax23 difference with the new proposal would24 have dropped this year by about $300. It25 130 11/30/10 - WHOLE - BILL 1006351 doesn't sound like a whole lot, but for a2 small company, it is. If you look going3 out five years, it drops that tax $1,5004 to $1,800. That's part of a person's5 wage, that's a health insurance premium6 for the month, that's a rent payment and7 so forth. So it's significant to us.8 Under the growth assumptions9 that we have laid out, our tax -- of10 course, our tax savings would be11 significant as well. I see the savings12 as an avenue for me to pay and upgrade13 capital equipment and add additional14 staff and invest in ways to help us grow15 additionally.16 I support the BPT reform for17 two main reasons. First, it would mean a18 tax savings for my company, and,19 secondly, I think the reform would make20 my company and other manufacturers in21 Philadelphia more competitive with22 companies based outside of the City.23 Almost all of our sales, in24 excess of 90 percent, are to customers25 131 11/30/10 - WHOLE - BILL 1006351 outside the City. Under the current BPT2 structure, we have to pay net income tax3 on all these sales, which puts us, again,4 at a disadvantage to our competitors.5 The proposed reform would level the6 playing field for us in competing with7 those companies outside the City.8 As the head of a Philadelphia9 business firm, I urge you please vote for10 the BPT reform.11
22 First, let me thank City23 Council of Philadelphia for providing a24 forum for dialogue and discussion25 132 11/30/10 - WHOLE - BILL 1006351 regarding the impact and merits of the2 reform provisions of the Philadelphia3 business privilege tax. I would4 especially like to thank Councilman Green5 and Councilwoman Sanchez for being on the6 forefront of communication of this reform7 to the citizenry of Philadelphia. 13 To provide some background,14 Sandmeyer Steel Company is a15 third-generation, privately held16 manufacturer and processer of stainless17 steel and nickel alloy plate products18 serving a variety of what we generically19 call the process industries. We employ20 approximately 115 people. Our customers21 manufacture equipment for many different22 industries using stainless steel plate23 products. We service many industries,24 such as the oil and gas, chemical, pulp25 133 11/30/10 - WHOLE - BILL 1006351 and paper, water purification, food2 processing, semiconductor, solar3 equipment and, most recently, we are now4 involved in the nuclear industry. 14 With all that has been said,15 Sandmeyer Steel Company remains as a16 proud tax-paying corporate citizen in17 Philadelphia since its inception in 1952,18 and our company has provided jobs to many19 over almost 60 years of existence, thus20 supporting the City of Philadelphia21 through the City wage tax. 8 On more than one occasion, we have spoken9 about the possibility of moving outside10 of the City of Philadelphia due to its11 business privilege tax to a more12 attractive location for us to sell to our13 national and worldwide markets. Frankly,14 we're located right next to a golf course15 two-tenths of a mile and maybe a four16 iron away from Montgomery County. 19 I am here to render my support20 for Bill No. 2 As mentioned before, when you3 combine the six and a half City tax BPT,4 the 35 percent federal tax and then the5 ten percent, we're looking at over 506 percent of tax being paid to the various7 entities. 9 I have analyzed the impact to10 these proposed changes on our company by11 reviewing the five-year period ending12 December 31st, 2009. 2 million. This equates to about five17 jobs each year with benefits. It would18 result in additional investment in more19 efficient and effective equipment,20 growing our business and increasing21 employment. 25 137 11/30/10 - WHOLE - BILL 1006351 While the taxes of Sandmeyer2 Steel are reduced, properly administered,3 this tax will be replaced and enhanced by4 the taxing of many entities who are not5 based in Philadelphia but are6 economically involved and advantaged in7 the City and pay little or no tax to8 support the services for which they9 benefit. The elimination of the income10 tax portion and the application of a11 higher gross receipts tax rate is sound12 policy for not only the business13 community but also the City of14 Philadelphia. It provides a broader tax15 base taxed at albeit a higher rate. It16 will provide a more stable source of17 revenue during weaker economic times, as18 we've experienced these extraordinary19 times, when cities are challenged to20 provide services and corporations21 struggle to survive. 6 Although it was mentioned that not --7 there are not municipalities that do8 this, Ohio and Washington state are two9 states that have gone the board of --10 gone the way of an income tax based on11 gross receipt. And for the record,12 Sandmeyer Steel Company pays the13 commercial activity tax in Ohio and the14 business and occupation activity tax in15 Washington state. In each case, they16 involve very simple returns. It takes me17 five minutes. 3 I do have confidence in the4 members of this Chamber that you will5 thoughtfully consider anything that we've6 set up here. Your decision regarding the7 bill will be a key to the future progress8 of the City and whether or not it will9 regain its attractiveness for new10 business and expansion of existing11 businesses. 20
Thank21 you very much.22 The Chair recognizes Councilman23 Green.24
Thank you25 140 11/30/10 - WHOLE - BILL 1006351 all for your testimony.2 When you say it will level the3 playing field for you, this change, can4 you describe the taxes, say, that you and5 a national competitor would pay if6 selling to the same customer in Texas?7
We're paying six8 and a half percent income tax. In Texas9 there is no income tax.10
So if you11 had a competitor in Montgomery County who12 produced the same product that you13 produced and you both made a sale to14 Texas, what taxes would you pay that they15 don't pay?16
We're going to pay17 the gross receipts tax on the shipment18 and we're also going to pay a tax on the19 income as it relates to that shipment.20
You're not21 going to pay gross receipts, right,22 because it's a sale outside the City?23
That's correct, but24 the income tax portion we would pay.25 141 11/30/10 - WHOLE - BILL 1006351
So you'll2 pay the net income tax; they will not pay3 any net income tax?4
So you're at6 a 6.45 percent pricing disadvantage on7 that sale to begin with, which8 essentially means you're working with9 less cash flow as a consequence of our10 tax policy?11
Which means13 you have less to invest, and that's14 why --15
Well, when you're16 talking about $250,000 a year, that's a17 major piece of equipment or employees18 that can be hired.19
Now, if we20 change the tax policy to the one that's21 proposed, what taxes would you pay on the22 sale to Texas?23
We would just have24 income tax from Pennsylvania's25 142 11/30/10 - WHOLE - BILL 1006351 standpoint.2
Right. And6 what taxes would your competitor in7 Montgomery County pay?8
Right. So10 we've completely leveled the playing11 field for when you sell outside the City.12 Now, if you and a competitor13 were to sell inside the City before this14 change, right --15
Before this change16 we would pay the tax and they would not.17
Right. And25 143 11/30/10 - WHOLE - BILL 1006351 so when we change the law and you both2 make a sale in the City, what would3 happen?4
Because you7 would each pay the gross receipts tax at8 the same exact rate?9
So that when11 you're competing on price, you don't have12 to --13
Right.16 Okay. I just wanted to cover that. I17 appreciate your testimony.18 Mr. Rosania, I think the19 Councilwoman was there with me that day.20 The Councilwoman -- at any rate, we21 traveled out to your place of business22 and assembled was, I think, the UII and23 Manufacturing Alliance members and about24 30 manufacturers were there. We talked25 144 11/30/10 - WHOLE - BILL 1006351 about this proposal.2 Have you heard anyone say, any3 manufacturer, say that they would be hurt4 by this proposal of all the people that5 we've talked to over --6
No, I have not.7 And that was at the end of August,8 beginning of September where we sponsored9 a plant tour with the Manufacturers10 Alliance of Philadelphia. That is an11 association of just Philadelphia-based12 manufacturers, and you graciously spent13 your time explaining the nuances of the14 reform, and the response at that time was15 very positive.16
Okay. I17 have, Madam President, a letter from18 Cardone Industries, which is the City's19 largest manufacturer, where they come out20 and endorse the proposal. They have sent21 it to the Chamber of Commerce and said22 that we could submit it as their23 testimony for today. So I want to enter24 that letter on the record.25 145 11/30/10 - WHOLE - BILL 1006351 I will -- basically what they2 say is the proposal would help Cardone's3 bottom line and help the manufacturing4 sector generally, laying the foundation5 for additional job growth in6 Philadelphia. This is a company that7 currently puts their profitable lines8 outside of the City and runs their9 marginal lines here because they don't10 have to pay net income tax on marginally11 profitable lines.12 But perhaps as important as the13 dollar savings is the message that this14 BPT reform would send to companies15 already located in Philadelphia or16 considering moving here. By eliminating17 the profitability penalty of the net18 income tax and reducing the competitive19 disadvantage of Philadelphia-based firms,20 the proposal would make the City more21 competitive in attracting and retaining22 businesses and encouraging economic23 growth.24 So I think there's a copy up25 146 11/30/10 - WHOLE - BILL 1006351 there.2
Thank you.5 With respect to new6 manufacturing, attracting a manufacturer7 to the City today, is there any reason a8 manufacturer, whether they're putting in9 place a pharmaceutical line or any other10 kind of manufacturing, some of the green11 tech manufacturing, et cetera, is there12 any reason for them to come into the City13 of Philadelphia if they want to be in the14 region versus locating in Montgomery,15 Bucks, Chester or Delaware Counties?16
Well, the area17 has a lot to offer, but from the nature18 of this discussion, from a tax19 perspective, it would be very20 challenging.21
It would be22 challenging. And if we change the tax23 policy with respect to manufacturing24 along the lines we discussed, would there25 147 11/30/10 - WHOLE - BILL 1006351 be any tax analysis they would have to do2 between locating in Montgomery County or3 Philadelphia for City-level taxes?4
So they7 could make the decision based on where8 they want to be, ignoring tax9 consequences and focus on where the best10 workforce is and where the property value11 is least expensive and make their12 investment, just sort of based on normal13 business factors?14
Okay. Thank16 you. I don't have any additional17 questions. Thank you very much.18
Thank19 you.20 The Chair recognizes Councilman21 Goode.22
Thank you,23 Madam President.24 Good afternoon. Staying on the25 148 11/30/10 - WHOLE - BILL 1006351 theme of fairness, do you believe that we2 should be raising taxes on any3 businesses?4
Do you6 believe that we should be raising taxes7 on any businesses?8
If you can9 basically do away with it, no, I wouldn't10 want to increase taxes --11
It's a yes12 or no question. Do you believe that we13 should be raising taxes on any14 businesses?15
Do you17 believe we should be raising taxes on18 businesses so we can lower taxes on your19 business?20
It's a yes23 or no question. Do you believe that we24 should be raising taxes on some25 149 11/30/10 - WHOLE - BILL 1006351 businesses so we can lower taxes on2 yours?3
I would say, again,4 if you didn't have to raise taxes period.5
That's a yes6 or no question. Do you believe that we7 should be raising taxes on some8 businesses so that we can lower taxes on9 yours?10
Okay.12 Please describe the skill set of your13 employees.14
We have -- we15 basically have a major machine shop up in16 Northeast Philadelphia. There's about 7017 to 75 individuals who work in that18 machine shop. They vary. They can run19 CNC machines. They can basically run20 bollards, lays, et cetera. And then21 there's others that have more rudimentary22 skills that are basically helpers in that23 vein. Beyond that, there's the office24 staff. That can vary from high school25 150 11/30/10 - WHOLE - BILL 1006351 education up to MBAs.2
Do you3 believe that the skill set requirement4 for your industry is higher than the5 skill set requirement for national6 retailers?7
So we should10 raise taxes on national retailers so that11 we can lower your taxes while those12 national retailers provide thousands of13 low-skill jobs for Philadelphians?14
Councilman, I think15 also what we have to look at is what16 would be best for the City of17 Philadelphia.18
That's what19 the proposal is. The proposal is whether20 we should raise taxes on some to lower21 taxes on others.22
So should we25 151 11/30/10 - WHOLE - BILL 1006351 raise taxes on national retailers to2 lower your taxes?3
You know, we're4 looking at a benefit for Sandmeyer Steel5 Company as a manufacturer and being6 competitive in Philadelphia.7
The question8 is whether we should raise taxes on9 national retailers so that we can lower10 taxes on your business.11
Pardon me,12 Councilman. I think that's probably a13 question that you should answer.14
Okay. What I17 would propose as a manufacturer, we in18 the country have lost manufacturing jobs.19
I asked the20 question. Do you care to answer it?21 Should we raise taxes on national22 retailers so we can lower your taxes?23
My opinion, you24 should lower taxes on all businesses.25 152 11/30/10 - WHOLE - BILL 1006351
Thank4 you.5 The Chair recognizes Councilman6 Kenney.7
Thank you,8 Madam President.9 I want to take a look at this10 from the outside looking in instead of11 from the inside looking out. Actually,12 this chart has been helpful to me,13 because it just -- as you guys are14 speaking about your Philadelphia-based15 business and your outside business16 dealings outside the City, I'm looking at17 this chart.18 I was wondering if the sponsors19 of the bill or staff know how many20 suburban firms pay the lower rate of BPT21 for the business that they do in the22 City. Is there a number of firms -- do23 we have an aggregate number of firms that24 actually are located in the suburbs in25 153 11/30/10 - WHOLE - BILL 1006351 the four-county surrounding area that2 actually do business in the City of3 Philadelphia?4
There are7 two categories of taxpayers that are not8 in the City -- that are not headquartered9 here. There's a category of taxpayer10 that is -- basically pay only gross11 receipts to the City and who have zip12 codes outside of Philadelphia County.13
Well, stick14 to the chart for a second. The suburban15 manufacturer who is going to go from 14516 to 530, do we know generally how many17 companies that involves located in the18 suburbs?19
Well, a20 suburban manufacturer could be a United21 States manufacturer, because these people22 compete nationwide. There are 23,00023 businesses that pay taxes here with zip24 codes outside the City.25 154 11/30/10 - WHOLE - BILL 1006351
Do we know2 how many are in, for example, the four3 surrounding counties?4
I would be7 interested in knowing that number, and8 let me give you the hypothetical I'm9 thinking of.10 The three of you have your11 businesses located in the City, and we're12 thankful for that and we thank you for13 your continued existence there and14 investment. If, hypothetically, you were15 located in Montgomery County or in16 Delaware County and the business that you17 did in the City of Philadelphia -- now,18 recognize that Sandmeyer Steel may be a19 company or you guys may do more business20 in Washington state and Texas and other21 places, but if you were a company located22 in one of the four surrounding counties23 and your BPT rose from 145 to 530 under24 this proposal, you wouldn't be happy, I25 155 11/30/10 - WHOLE - BILL 1006351 assume. That's not something that would2 make a suburban-based manufacturer or3 business that does business in the City4 very happy, because we're basically5 raising your taxes. I mean, it's just a6 hypothetical.7 So basically a Philadelphia8 legislator -- Legislature is raising9 taxes for suburban businesses that do10 business in the City.11 What do you think would be the12 reaction of the suburban business13 community towards their Senators and14 Representatives who represent them in15 Harrisburg when we've actually -- it16 reminds me of the wage tax fight back, I17 guess, in the '70s, '80s where the18 animosity that was generated towards19 Philadelphia as a result of not having a20 differential wage tax was a really huge21 issue at the time.22 Based on the number -- and we23 don't know what that number is -- the24 number of companies in the four-county25 156 11/30/10 - WHOLE - BILL 1006351 region or further out into hinterlands,2 Berks County, Lancaster County, places3 where actually by motor truck or train4 you can actually do business in the City,5 what is the impact of the tax rates on6 those companies and what is the reaction7 of now a republican-dominated Legislature8 and Governor's Office towards9 Philadelphia raising the taxes of10 suburban manufacturing and other11 companies that do business in the City?12 I suspect there would be some reaction,13 and I don't suspect that it would be a14 positive reaction, and I can't tell the15 impact unless I know how many businesses16 are actually in that Pennsylvania17 suburban or ex-urban group.18 Now, if there's a company19 that's located in Oklahoma that does20 business in Philadelphia, I don't know21 what they're going to do. They probably22 have very little reaction they can take,23 but I can tell you that I would suspect24 the Chester County Chamber of Commerce,25 157 11/30/10 - WHOLE - BILL 1006351 the Delaware County Chamber of Commerce,2 the Montgomery County Chamber of Commerce3 are going to be knocking on Dominic4 Pileggi's door and Senator Erickson's5 door and some of these other folks6 saying, Yo, Philadelphia just raised my7 taxes, what are you going to do to8 counteract it?9 I mean, it's a hypothetical,10 but I don't know what the reaction of11 that republican -- and I'm not being12 partisan here, but the13 republican-dominated Legislature toward14 Philadelphia actually raising their15 businesspeople's taxes.16
I would agree. I17 got two letters, one from the State of18 Ohio, one from the State of Washington19 and I wasn't happy either. But the fact20 of the matter is, I guess for suburban --21 for the suburban companies, they are22 using City services. I mean, there is a23 rationale that people should pay their24 fair share and that the taxes that are25 158 11/30/10 - WHOLE - BILL 1006351 now borne by all Philadelphia companies2 are inordinate compared to what they3 receive.4
And I don't5 have an argument with that fact, with6 that issue. I think everyone should pay7 their fair share. That was the argument8 that was made back during the wage tax9 debate, and we wound up having to have a10 differential in the wage tax to keep the11 suburban legislatures and Harrisburg off12 our back. I think it was even maybe even13 a lawsuit that was brought up. I'm not14 sure of the details of how that happened.15 It was a while ago.16 But I just -- I mean, it is an17 unknown as to what reaction those Chamber18 of Commerces and those legislators and19 Senators would have towards Philadelphia20 towards what we get from them in state21 aid. I mean, I don't know whether they22 could exempt their companies out. I23 don't know what they're legally able to24 do to us or for their companies that25 159 11/30/10 - WHOLE - BILL 1006351 they're representing, but it is a dynamic2 that I would be interested in pursuing,3 just to get an idea as to what the4 reaction might be.5 So thanks.6